If you’re worried about your finances, you’re not alone. Money has historically been a leading stressor for Americans, according to the American Psychological Association’s annual Stress in America survey.
Fortunately, this is one form of stress you can reduce, if not eliminate. And it all starts with taking a close look at the way you use the money you currently have.
The following tactics will help you get control of your cash — and quit stressing.
1. Follow the money
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According to the National Financial Capability Study by the FINRA Investor Education Foundation, 18 percent of U.S. residents spend more than they earn — not counting big-ticket items like new cars or houses. And 21 percent have past-due medical bills.
Do you have ever-increasing credit card balances and calls from collections agents? Super stressful! Fortunately, you can take steps to pull yourself out of the hole:
- Track your spending: Use pen and paper or software like YNAB (short for “You Need A Budget”). At the end of the month, you might be startled to see how much money leaked away on impulse purchases or, yes, those doggone lattes.
- Make a budget: It doesn’t have to hurt! YNAB will walk you through the process. Or try the 50/30/20 budget: No more than half of your after-tax income goes toward needs, 30 percent toward wants, and 20 percent for savings and debt repayment.
- Hack your spending: Every dollar you don’t spend is a dollar that can be sent toward the future.
- Don’t try to do it all at once: Would you do a 100-mile ride the first week you owned your bicycle? Of course not. Gradually incorporate money-saving ideas into your lifestyle. Aim for one per week or per month, depending on how complicated the change is.
2. Know what you owe
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Make a list or a spreadsheet of every debt you have: student loans, mortgage, car payment, credit card balances, child support, whatever. Add up the minimum monthly payments — make sure you’re sitting down when you do this — and you’ll have a clear idea of what has to go out each month.
3. Set attainable money goals
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First, see about contributing to a 401(k), individual retirement account (IRA) or some other retirement vehicle.
Maybe you think it’s smarter to pay off the balances on your credit cards first, given their bruisingly high interest rates. But you can’t finance your retirement.
If you’re lucky enough to have an employer match, aim to contribute enough to get the full match, even if you have to start small.
No such benefit at your workplace? Look into IRAs and get going. Automate at least some money each month into one of these accounts, even if you have to start small.
About that credit card debt: Rather than making minimum monthly payments — and stressing out over the ever-increasing balance — make a specific plan to pay it off.
Some consumers swear by the snowball method, which entails paying off the credit card with the lowest balance first, even if it also has the lowest interest rate. The theory is that slaying that first debt dragon quickly gives you the incentive and momentum to keep going.
A smarter way, however, is to focus on the card with the highest interest rate, which will minimize interest charges. After you pay off that card, you focus on the one with the next-highest interest rate, and so on.
To minimize interest further, utilize the balance-transfer method: Get a zero-percent interest credit card and transfer all your debt there, then work like mad to pay it all off. You can find and compare no-interest credit cards by using a free resource like Money Talks News’ credit card tool — select “0% APR” from the menu on the left.
4. Celebrate every victory
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Make a monthly money date with yourself — and your spouse or partner, if you have one — to look clearly at your funds. Look at all signs of progress:
- “My consumer debt is 15 percent lower than when I started a few months ago. If I keep going at this rate, I’ll be debt-free within one year.”
- “My Roth IRA has $1,100 in it — woo hoo! This time last year I didn’t even have a Roth IRA.”
- “Only three more car payments, and the vehicle is mine.”
5. Create a few long-range goals
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Here’s where the fun starts. Until now, you may have felt too fearful even to look at your finances, or too worn down with paying bills to think beyond the next money issue. Now you get to blue-sky the rest of your life.
Specifically: What do you want out of that life? Travel? Entrepreneurship? Buying a house? Raising a family? Retiring early?
Once you’ve identified your goals, take action. For example, clean up your credit so you can get a great mortgage rate someday.
Identifying the life you want will greatly reduce your money stress. You’ll no longer be on a financial treadmill: work, pay bills, work, pay bills. Instead, you’ll be taking steps to make your dream happen.
Keep in mind, however, that “I want to backpack around the world” shouldn’t come ahead of building an emergency fund or saving for retirement.
Note: Don’t set yourself up to fail by creating an unreasonable goal. “I’d like to pay off $80,000 in consumer debt in one year” probably isn’t going to work for most people. “I will look for a roommate and thus be able to put more money toward my debt repayment plan” is a lot more achievable.
6. Get an app for that
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The more streamlined your money management, the less stressful your life will be. Tools like automatic and online bill payment avoid late fees. Direct deposit means you’ll never wait in another line with your paycheck.
Again, tools like YNAB make budgeting so, so easy. It’s a stress-reliever, too. If you start feeling panicky about your funds, call up YNAB and learn that, no, you didn’t overspend on meals out this month. In fact, you’ve spent 40 percent less in restaurants than you did last month. Go you!
And if you don’t use online bill pay, be sure to pay any bills promptly — as in the day they arrive. Prevent paper clutter by scanning things you need to keep, and shredding everything else. Messy piles of bills and insurance paperwork is stressful. A clean desk is calming.
7. Seek answers to your questions
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Maybe it stresses you out to hear friends talking about ETFs and IRAs because you haven’t got a clue what they mean. Don’t be ashamed: Lots of people grow up with little to no financial education, either at home or at school.
The internet makes money education easy. Money Talks News, for one, is filled with explanations of the best saving and spending tactics, along with more in-depth discussions on topics such as retirement and investing. Some recommendations:
- “How to Get Started Investing if You Don’t Have Much Money”
- “7 Tips for Stress-Free Retirement Plan Investing”
- “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple”
What are you doing to de-stress and get your finances under control? Share with us in comments below or on our Facebook page.
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